In 2023, Microsoft entered a strategic partnership with Builder.ai, an AI startup valued at $1.5 billion and backed by SoftBank, Qatar Investment Authority, and Insight Partners. The company claimed to democratize software development through AI. The pitch was compelling. The numbers looked strong.
By May 2025, Builder.ai had filed for bankruptcy across five jurisdictions.
An internal investigation and independent audit revealed the company had inflated its 2024 revenue by approximately 300% – reporting $220 million against an actual figure closer to $55 million. Between 2021 and 2024, the company had conducted a $180 million round-tripping scheme with Indian unicorn VerSe Innovation, booking mutual invoices for services that frequently never existed. Over 700 human engineers in India were manually building products that were marketed as AI-generated. The collapse left customers stranded, creditors unpaid, and more than 1,000 employees without jobs.
Microsoft failed to verify reseller contracts that were central to the revenue figures. Nobody asked to see actual bank statements confirming the claimed revenue existed. The information that would have exposed the fraud was available before the partnership deepened. The due diligence investigation that would have found it wasn’t conducted thoroughly enough.
That case is not an outlier. A 2025 Grant Thornton survey of 200 deals over $100 million found that 41% of acquirers reported material post-close discoveries they believed should have surfaced in diligence. Inadequate due diligence investigations account for 31% of all M&A deal failures. Compressed diligence windows of under 30 days correlate with an average post-close deal value destruction of 11.3%. The pattern is consistent: the information was available. It just wasn’t properly examined.
What Due Diligence Investigations Actually Mean in Practice
The term gets used broadly enough that precision matters. There is a significant gap between what most organizations call business due diligence and what a proper due diligence investigation actually involves, and that gap is where the majority of post-close surprises originate.
A database check confirms a name doesn’t appear on a sanctions list. A corporate registry extract confirms an entity exists. A credit report shows no obvious financial defaults. All of it verifies the surface. None of it tells you what’s underneath.
Most due diligence failures don’t occur because no one looked. They happen because people looked too narrowly, trusted what was handed to them, missed the relationships that mattered, and moved too fast to challenge the story. When that happens, companies inherit lawsuits, fraud exposure, hidden conflicts, reputational damage, and financial loss that could have been identified before any agreement was signed.
Real due diligence investigations treat a prospective partner or acquisition target the way an investigator would treat any subject: systematically, skeptically, and with the goal of finding what isn’t immediately visible rather than confirming what is. That means tracing beneficial ownership through multiple corporate layers, conducting forensic analysis of underlying financial records rather than accepting reported figures, and gathering intelligence through source interviews with people who’ve worked alongside the target.
The Mistakes That Business Due Diligence Consistently Prevents
Hidden Financial Liabilities
Financial due diligence is the process of establishing whether a target’s reported financial position reflects economic reality rather than internal consistency. A common mistake is accepting numbers at face value without probing for hidden liabilities: off-balance-sheet debts, pending litigation, or unresolved tax obligations.
The Builder.ai collapse illustrates this precisely. Revenue figures that had been presented to investors and partners for years were manufactured through round-tripping and inflated booking practices. The actual operational numbers bore no relationship to what had been reported. A forensic Quality of Earnings review, which typically costs between $15,000 and $50,000 — would have caught this before $450 million was committed.
Out of 850 private-company deals tracked by ClearlyAcquired, buyers filed 518 indemnity claims and 200 earn-out disputes after closing. In the 2024 VitalCaring vs. Encompass case, a Delaware judge ordered 43% of future profits into a constructive trust after founders concealed related-party debts and off-balance-sheet liabilities. These outcomes are not exceptional. They are the documented result of business due diligence that stopped at the surface.
Undisclosed Ownership and Control Structures
40% of global wealth is held in jurisdictions with high financial secrecy. The person who legally owns an entity is frequently not the person who controls it. Control can be exercised through financing arrangements, advisory relationships, or informal agreements that exist entirely outside formal documentation.
Undisclosed liability claims in M&A have more than doubled since 2022, now accounting for 24% of all breach of representations and warranties indemnification claims. Corporate due diligence that stops at the corporate registry misses the beneficial ownership layer entirely, and that layer is where the most material risks consistently sit.
Regulatory Exposure Across Jurisdictions
Regulatory due diligence complexity increased 67% year-over-year in 2026, particularly in fintech and technology acquisitions. The Huntington-Cadence Bank integration revealed that insufficient regulatory diligence created 18 months of compliance rework worth $340 million — exposure that existed before the deal and was fully discoverable before it closed.
A target that looks clean in its home market may carry significant exposure in others. Due diligence services USA with genuine cross-border reach check regulatory standing across every market where a counterparty operates. Courts and regulators increasingly scrutinize whether a buyer conducted reasonable inquiry, making the quality of due diligence investigations a material factor in later disputes over liability allocation.
Reputational Risk That Databases Don’t Capture
A counterparty can have entirely clean regulatory records and no adverse media coverage while being broadly understood in its industry as an unreliable partner, a litigation risk, or an organization under financial pressure it hasn’t publicly disclosed.
That intelligence doesn’t exist in any database. It exists in conversations with people who’ve worked alongside the target, invested in it, or left the organization. In the Builder.ai case, the Wall Street Journal had reported as early as 2019 that the company relied on human developers rather than AI for coding, a signal that was publicly available but apparently not surfaced during subsequent investment rounds. Reaching the right people through source interviews is what distinguishes genuine business due diligence from a compliance screening exercise.
The Due Diligence Investigation Process in Practice
A properly structured due diligence investigation process operates across three integrated areas simultaneously.
Financial due diligence examines underlying records rather than reported figures. Revenue recognition policies, working capital trends, contingent liabilities, and off-balance-sheet obligations are examined against source documentation. The question is not whether numbers are internally consistent but whether they reflect economic reality. In Builder.ai’s case, no one verified whether the revenue actually corresponded to cash received, a fundamental step in any serious financial due diligence engagement.
Legal and regulatory due diligence reviews litigation history across all relevant jurisdictions, regulatory standing and enforcement history, material contracts and their transferability, and any pending claims that weren’t volunteered during the commercial process.
Reputational and field intelligence is the layer most organizations underinvest in. Source interviews with former employees, former clients, and industry peers not provided by the target are where the most operationally significant findings consistently emerge. The Builder.ai collapse was preceded by years of publicly available signals: customer complaints, whistleblower accounts, and a 2019 press report that described the company’s actual operations. A field intelligence layer would have surfaced those signals before $450 million was committed.
The due diligence investigation process is most valuable when it starts early. Once a term sheet is signed and a timeline established, commercial pressure constrains both scope and findings. Organizations that allocate less than 2% of deal value to due diligence resources consistently report synergy shortfalls averaging 14.8% against targets.
When External Due Diligence Services USA Are the Right Choice
There are situations where internal teams cannot conduct business due diligence with genuine independence, and those situations consistently coincide with the transactions where the stakes are highest.
Internal teams operate under commercial pressure to close. They may have existing relationships with the counterparty. They may lack the forensic accounting, digital forensics, or cross-border investigative capability that a complex transaction requires.
External due diligence services USA bring specific advantages: independence from the commercial dynamics of the transaction, specialized investigative capability across forensic accounting, beneficial ownership tracing, digital forensics, and field intelligence. Cross-border reach in jurisdictions where internal teams have no local presence. And findings documented to evidentiary standards from the outset.
73% of senior executives expect the corporate due diligence process to become more complex over the next 12 to 24 months. The organizations that navigate that complexity best treat due diligence investigations as a value center rather than a cost center — engaging specialist capability early enough to use findings as leverage rather than as evidence after the fact.
Due Diligence Investigations Beyond Acquisitions
Business due diligence is most commonly associated with M&A, but the same investigative methodology applies across vendor onboarding, partnership formation, executive hiring, investor relationships, and high-value contract awards.
Spending time investigating a potential partner before signing is almost always less expensive than trying to untangle a bad partnership later. Business lawsuits frequently involve years of litigation, substantial legal fees, and operational disruption that compound long after the original decision. A handshake and a strong pitch are not business due diligence. In high-value decisions, the cost of not knowing is almost always higher than the cost of finding out.
If you’re approaching a significant transaction or partnership and want to understand what a proper due diligence investigation would cover, the first conversation is confidential.
FAQs
What is a due diligence investigation?
A due diligence investigation is the structured process of examining a potential business partner, acquisition target, or counterparty before entering a commercial relationship. It goes beyond standard database screening to examine beneficial ownership, financial health, litigation history, reputational standing, and cross-border regulatory exposure — producing a verified picture of who you’re actually dealing with rather than confirming that a name comes back clean.
What does the due diligence investigation process include?
The due diligence investigation process covers forensic financial due diligence of underlying records rather than reported figures, beneficial ownership tracing through multiple layers of corporate structure, litigation and regulatory history across all relevant jurisdictions, reputational intelligence from source interviews, and sanctions and adverse media screening.
What is financial due diligence and why does it matter?
Financial due diligence is the forensic examination of a target’s actual financial position — revenue recognition, working capital trends, contingent liabilities, and off-balance-sheet obligations — to establish whether reported performance reflects economic reality. It matters because the most significant financial risks in a transaction are almost never visible in summary financials.
When should business due diligence be commissioned?
As early as possible. The most valuable business due diligence work happens before a term sheet is signed and a commercial timeline is set. Early engagement produces findings that can be used as negotiating leverage, to adjust valuation, require remediation, or walk away cleanly.
Can due diligence investigation findings be used in legal proceedings?
Yes, provided the due diligence investigation process was conducted and documented to evidentiary standards. Findings that identify specific misrepresentations, undisclosed liabilities, or fraudulent disclosures can support renegotiation, contract claims, regulatory submissions, and civil litigation.
How does CAT Investigators approach due diligence investigations?
CAT Investigators provides specialist due diligence services USA and internationally, combining forensic financial due diligence, beneficial ownership tracing, corporate due diligence across cross-border structures, reputational field intelligence, and blockchain forensics where digital assets are involved. Our due diligence investigation process is built around producing findings that hold up when challenged — in a boardroom, a courtroom, or a regulatory forum. With offices in New York, London, and Hong Kong, we work across the jurisdictions where complex transactions most commonly arise. The first conversation is confidential.